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Reform of RCT (Relevant Contracts Tax) Budget 2011

The following changes are contained in Budget 2011

• Replacement of the current RCT rate of 35% with a tworate withholding system on a revenue neutral basis:
o 20% rate for subcontractors registered for tax with an established compliance record;
o 35% rate for subcontractors not registered for tax;

C2  registered subcontractors who, as before, are eligible to receive payments without deduction of RCT;

• Abolition of the monthly repayment system and replacement with an offset system;

• Strengthening of the reporting system for RCT Principals in order to enhance compliance and reduce the opportunities for fraud.

More complete details are expected in the Finance Bill which will clarify the criteria for the application of the 20% and 35 % rates. It should also contain more details on proposals to replace the current system of periodic repayments of RCT with a system of offsetting RCT against tax liabilities.

It should be noted that RCT may impact on many industry sectors, including the public sector and telecommunications industry. It is not always limited to the

traditional RCT industries of meat processing, construction and forestry

RCT – Relevant Contracts Tax

If you are a principal contractor, You must deduct Relevant Contracts Tax at 35% from payments made by you to an unauthoriesed subcontracted you have engaged to carry out relevant contract for example: meat processing, construction operations or meat processing on your behalf.

You do not need to deduct RCT payments from a subcontractor who produces a C2 (Subcontractors certificate)

If you are an unauthorised subcontractor, you can claim credit for RCT paid by you against your tax liability. You may also claim an interim refund of RCT paid if the tax payable for the likely period exceeds the proportionate liability for the entire tax year.

Distinguishing employee’s from contractors is very topical at the moment. Principal contractors should be extremely careful in this area as they would be liable for the PAYE, interest and penalties IF it was found that their contractors were actually employees.

If you require any assistance or advice with RCT please do not hesitate to contact

tax@domybooks.ie
or phone Ralph on 086- 3336665